What is the correct order of payment priority in a foreclosure situation?

In a foreclosure situation, the correct order of payment priority is established based on the legal principles that govern liens against real property. This order dictates which creditors are paid first from the proceeds of the sale of the property.

Property taxes take precedence over all other liens because they are considered a governmental obligation. If the property is sold in foreclosure, any unpaid property taxes must be settled first. Once those obligations are satisfied, the next priority goes to the first lien, which often involves the primary mortgage on the property. After the first lien is addressed, any subsequent liens, such as second and third mortgages, are settled in that order.

Understanding this priority is crucial for both homeowners and investors because it affects potential recovery from foreclosure proceedings. If the proceeds from the sale aren't sufficient to cover all liens, junior liens like second and third liens might not receive any payment once the more senior obligations are settled. Therefore, the correct choice reflects this legal hierarchy: property taxes are prioritized first, followed by the first lien, then the second lien, and lastly, the third lien.